In his weekly Sunday Times commentary, SMU Adjunct Faculty Larry Haverkamp offered three investing tips. First is to seek out risk since the only way to get higher returns is to take higher risks. Second is to hold for the long-run, and Dr Haverkamp cited a statistic from Wharton Professor Jeremy Siegel that since 1871, stocks have outperformed bonds over every 30-year holding period. Third is diversification will reduce risks, and he showed an example of negative covariance reducing the variance (risk) in a portfolio. He also showed that the asset class with the most negative covariance is bonds. For example, its price goes up in recessions while stock prices fall. The drawback is that in order to get this feature, it is necessary to include a low risk/return asset (bonds) in one’s portfolio, which many risk-taking investors would not want.
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